Your Excellency Ambassador Araud, honorable ladies and gentlemen, thank you for this opportunity to share some thoughts on this important topic.
Climate change is affecting us all. Typhoons and floods, droughts and wildfires, heatwaves and earthquakes. The increasing frequency, intensity and devastation of these and other natural disasters epitomize the decades of industrialization with minimal consideration or understanding for the consequences. Millions of people are displaced from their homes annually, their livelihoods and income jeopardized; many lose their lives. As we sit here in Washington D.C. this afternoon, with His Holiness the Pope just a few miles away, it is difficult to envision the urgency needed to address what has become one of the most challenging issues of our generation.
Climate change is a fundamental threat to the economic growth of many developing countries, as the poorest of our world are disproportionately affected. If we do not confront climate change, we have no hope of achieving our goals of ending extreme poverty or boosting shared prosperity.
2015 - in fact this month - marks a significant moment for development, as the international community will agree on the set of Sustainable Development Goals (SDGs) that take us to 2030. Achieving them, and in particular helping countries implement actions for climate change adaptation and mitigation and disaster risk management, will require moving from billions to trillions in resource flows. For this to happen, we must embrace a paradigm shift that encompasses a framework reliant on resources and investments of all kinds—public and private, national and global. Financing from private sources, including capital markets, institutional investors and businesses, will become particularly important. This is one of the key shifts I see this year, and it is not an easy one.
The role of the multilateral development banks (MDBs) will continue to be pivotal for catalyzing and channeling additional sources of private flows, as these institutions have long acted as a bridge and a convening platform between the public and private sectors. We should not forget that for every $1 invested directly by MDBs in private sector operations, some $2-5 dollars are mobilized in additional private investment. This adds an estimated $40 to $100 billion to development flows every year. Overall, the financing required for an orderly transition to a growing, low-carbon, and resilient economy is counted in the trillions, not billions. To adapt to a world 2 degrees Celsius warmer, developing countries will require an estimated $75–100 billion per year over the next 40 years to build resilience to these changes, and mitigation costs are expected to be in the range of $140–175 billion per year by 2030.
The MDBs have a key role to play in meeting that challenge.
In the last year, they delivered more than $28 billion in financing for climate action and mobilized more from others sources – including the Climate Investment Funds, the Montreal Protocol, the Global Environment Facility and carbon markets.
I am sorry that I missed Madame Largarde’s comments earlier this afternoon. The IMF and the Bank Group stand hand-in-hand and continue a strong collaboration around issues pertaining to removal of fossil fuel subsidies, and putting a price on carbon. These are important policy tools to provide governments with the funds to drive investment in a cleaner future and to protect poor people.
At the Bank Group, we are stepping up our mitigation, adaptation and disaster risk management work, and increasingly look at all our business through a climate lens. Through the IFC, we work with the private sector through investments in mitigation and adaptation and advisory work with clients to help manage the risks and opportunities. Since 2005, we have provided about $13 billion in long-term financing for renewable power, energy efficiency, sustainable agriculture, green buildings and private sector adaptation to climate change. In fiscal year 2015 alone, IFC’s total climate-related investments were $2.3 billion, covering 103 climate investment projects in 31 countries. We also mobilized a record $2.2 billion from other investors, reflecting a growing appreciation that clean energy, resource efficiency and climate change adaptation represent areas of opportunity for us and our clients.
As we approach the critical climate negotiations in Paris in December, it is obvious that the private sector’s ingenuity and innovation will be critical in ensuring that the world is on a low-carbon growth path. Innovation is the driving force for clean energy, renewables and energy efficiency. Countries need to diversify their energy generation sources and – where possible – deploy indigenous sources of power rather than using foreign exchange to import fuel. We see increasing opportunities for renewable technologies in competitive markets, without the need for subsidy or market incentive in some countries. As power grids develop, renewables can also be grid-connected, enabling greater private sector participation. Renewables is a strong IFC business line. In FY15, they invested close to $900 million in renewable energy, of which 30% million was in wind and 40% million was in solar.
I would like to share a few examples of where we have engaged with the private sector: In China, our financing helped the China WindPower Group develop its 201-megawatt power plant in Gansu province. This is China’s first wind power deal financed entirely through international bank syndication. On my recent visit to Mongolia, I had the opportunity to visit the large-scale, 100-megawatt wind farm that we helped to finance. And, our deal with Odea bank in Turkey financed green mortgages – a very new and promising area for climate change mitigations. Through this project, we expect to develop sustainable energy investments across all building construction sectors, to generate significant GHG emissions reductions and to provide an important demonstration in Turkey for other emerging markets economies of the feasibility and impact of green mortgages.
Combatting climate change requires finance and we know that to-date, the current flows of finance have been inadequate. This is not a challenge that the public sector can meet alone. I cannot emphasize enough the essential role the private sector plays in terms of raising capital. However, investors need to have confidence that the right policies are in place to make long-term investments for the climate. Recent research indicates that from now to 2030, the global economy will require approximately $90 trillion in infrastructure investments across cities, energy and land-use systems and over $4 trillion in incremental investment for the low carbon transition to deliver on the 2 degree Celsius goal.
We, through the IFC, look for innovative ways to catalyze the limited public funds to unlock private investment. For example, we deploy concessional funds from donor partners alongside our own commercial funds to stimulate climate-smart private sector investments that would not otherwise happen and that have a high development impact. Since 2010, IFC has deployed close to $300 million of concessional funds and catalyzed close to $5 billion in other party financing.
I must also mention the Climate Investment Funds (CIF). With over $8 billion pledged from 14 countries, it is the biggest active multilateral climate finance vehicle worldwide. Through the MDBs, it provides scaled-up financing to initiate transformational change toward climate-resilient, low-carbon development. Every $1 CIFs dollar is leveraging almost $8 by others, and it expects about $57 billion cofinancing for climate-resilient, low-carbon development in 63 countries.
The CIFs are a leader in driving global investments in concentrated solar power with allocations expected to contribute to more than one-quarter of the current global concentrated solar power capacity [a projected generation capacity of 1.1 gigawatts]. The CIFs also work to break down barriers to geothermal power expansion by helping to expand markets in countries like Kenya, Indonesia and Mexico, and supporting some of the first large-scale geothermal projects in Ethiopia, Dominica and Chile.
Green bonds are another powerful source of private sector led climate finance that has emerged in recent years. They support environmentally friendly activities, including projects that help mitigate climate change or help affected countries adapt to its effects by strengthening climate resilience. By mid-September this year, a total of about $30 billion in new green bonds were issued. It is growing quickly as institutional investors – including pension funds, insurers and asset managers – seek out positive-impact investments that help limit long-term exposure to climate change risks.
The Group has two separate issuers that have played a catalytic role in this market. The World Bank has issued $8.5 billion in green bonds since it launched the first labeled green bond in 2008, with more than 100 transactions in 18 different currencies. The IFC has issued about $3.8 billion so far, including two $1 billion benchmark sales in February and November 2013 that helped solidify and grow the green bond market and the first Renimbi offshore green bond this year.
Proceeds from IBRD bonds go to projects such as two industrial energy efficiency projects in China that are estimated to reduce carbon emissions equal to removing 2.7 million passenger cars from the road each year. A Mexican project to improve forest management and expected to reduce deforestation and forest degradation in 1.6 million hectares – an area larger than the U.S. state of Connecticut. Examples of projects funded by IFC Green bond proceeds include: The construction of a 100 megawatt concentrated solar power plant in South Africa in response to their electricity constraints. In Honduras, proceeds helped fund three solar power plants
There are many more.
Developing innovative vehicles to stimulate investment in projects is another way we have been able to work with clients. An excellent example is the Pilot Auction Facility, the first climate-related online auction. This joint World Bank-IFC innovative fund for climate mitigation will auction carbon credit price guarantees to private sector companies that cut their methane emissions. The fund has $50 million in contributions from donors already. Twenty-eight companies participated in the first auction, held in July, and ended after 11 rounds with 12 winners and a clearing price of over $2 per Certified Emission Reductions. The auction will raise more than $2.5 million and allocate almost 9 million metric tons of carbon dioxide equivalent of put options. These options act as a price guarantee for green investors to deliver their climate friendly results. This Group approach reflects our ability to leverage our collective expertise and experience, and highlights how we join public and private sector enterprises to address large-scale complex issues.
Paris must be the starting point to bringing everyone together on a resolute path to net-zero greenhouse gas emissions before the end of the century. As we look forward to COP21 in December, we are hoping for an ambitious agreement. Unlike treaties of the past, the Paris Agreement needs to speak as loudly about low-carbon growth and economic transformation as it does of pollution or carbon emission targets. World leaders must show their commitment to a global goal of net-zero greenhouse-gas emissions by 2050. Meeting this commitment is critical to building trust and confidence for investors, particularly as CEOs are increasingly calling governments to action on climate change in terms of sending strong policy signals with clear long-term goals, appropriate energy prices linked to efficiency standards, and a meaningful, predictable price on carbon. The private sector is seeking new opportunities for investments as countries move forward on a low carbon path.
Much has been said about delivering on $100 billion in financing, and that the MDBs and institutions play a critical role. However, it is clear that businesses need to match this ambition by helping drive low carbon investment and bring low carbon solutions to scale.
Ambitious? Perhaps. However, without ambition – as well as dedication, decisive action and innovation – we would not have progressed so far as a civilization.
At the World Bank Group, we believe there is a credible path for the developed world to fulfil its promise to provide developing countries with $100 billion a year in climate financing by 2020. A key point is to work on centripetal forces to counter centrifugal forces at play in the world today. We have to resist them and work together.
And my last point. We cannot forget those who are most vulnerable and suffer the greatest – the poor. The impacts of climate change are real – they happen without discrimination. Therefore, as we speak of a deal in Paris, we should do all we can to ensure that vulnerable and impoverished communities that suffer disproportionately from climate change and are least equipped to cope with its impacts are protected.
We cannot end poverty or build shared prosperity without tackling climate change.